Emerging and developing economies

Question 1

What does HDI measure?

Answer 1

Health as measured by life expectancy at birth Education as measured by the mean years of schooling
Income as measured by real GNI per capita at purchasing power parity.

Question 2

HDI pros and cons

Answer 2

Three factors
Easy to calculate
No equality , freedom, corruption, environment measurement etc`
Doesn’t measure quality of education

Question 3

MPI

Answer 3

Multidimensional Poverty Index
This measures the percentage of the population that is multidimensional poor

Question 4

GPI

Answer 4

The Genuine Progress Indicator
It is calculated from 26 different indicators grouped into three main categories:
economic, environmental and social

Question 5

PPD

Answer 5

E.g Mining, agriculture
Over-specialisation
Products often have low YED
Little added value
Manufactured products have the added value

Question 6

Volatility of Commodity prices

Answer 6

Inelastic demand and supply therefore small changes lead to large fluctuations
Prevent via diversification with profits
Hard to carry out long term investment as a result

Question 7

Prebisch singer hypothesis

Answer 7

An economic theory that suggests that the prices of primary goods
tend to decline relative to the prices of manufactured goods over time.
Therefore terms of trade fall

Question 8

Dutch diseas

Answer 8

Country becomes large exporter causing a spike in demand for currency
Increase export prices and reduces competitiveness in other industries

Question 9

Savings gap/ Harrod-domar model

Answer 9

Increased savings → increased investment → higher capital stock → higher economic growth → increased savings
Therefore any intervention to increase capital stock leads to growth
Doesn’t account for productivity, corruption
Based on wealthier nations rather then less developed ones
Focuses on physical investment only

Question 10

Foreign currency gap

Answer 10

Currency outflows are greater then inflows
X too low relative to M
Large debt payments requires outflows

Question 11

Capital flight

Answer 11

Money or assets rapidly leave a country
Due to political upheaval, economic sanctions, war, or changes to government policy. I.e Russia 2022
Reduces the money available for investment, reducing growth & development

Question 12

Demographic factors

Answer 12

If the dependency ratio is high it means there is less money available for savings & investment
Many developing countries have high dependency ratios

Question 13

Debt

Answer 13

Prior vast loans lead to high levels of interest repayment
Less gov budget to sepnd

Question 14

Access to banking

Answer 14

Financial institutions enable individuals & firms to borrow money which can be used for investment or to generate growth

Question 15

Infrastructure

Answer 15

Attracts FDI and reduces business cost
Hard to generate economic activity
Why china is investing into Africa
I.e Ports railway roads etc

Question 16

Education & skills

Answer 16

Investing in this supply-side policy increases the potential output of the country
Higher education/skill levels → higher human capital → increased productivity → higher output → higher income

Question 17

Property rights

Answer 17

property is the main household asset which can be used to secure loans or generate income
Without rights loan cant be secured

Question 18

Non-Economic factors
(Affecting development)

Answer 18

Corruption(diverts funds)
Poor governance
Wars
Politcal instability
Geography(I.e. Landlocked)

Question 19

Trade Liberalisation

Answer 19

More trade increases output, employment & incomes

Question 20

Foreign Direct Investment

Answer 20

More FDI increases output, employment & income

Question 21

Subsidy Removal

Answer 21

Subsidy removal can increase competition, efficiency, employment, profits & income

Question 22

Floating Exchange Rate Systems

Answer 22

Appreciation can generate higher incomes as the cost of imported raw materials reduces possibly leading to higher income

Question 23

Microfinance

Answer 23

An extremely successful policy in many countries, especially Bangladesh. Microfinance helps to break the poverty cycle

Question 24

Privatisation

Answer 24

May increase competition leading to an increase in output, employment & incomes

Question 25

Human capital
(Development)

Answer 25

Policies aimed at developing human capital raise the potential output of the economy which leads to an increase in income

Question 26

Protectionism

Answer 26

This can intervene in natural market forces which lower wage rates. Protecting employees can lead to higher levels of income

Question 27

Managed exchange rates
(Development/ growth)

Answer 27

In a floating exchange rate mechanism, rising exports will lead to currency appreciation which, in time, will lead to a slowdown or fall in exports. Managing currency prevents appreciation & a slowdown in exports leading to long periods of growing income

Question 28

Infrastructure

Answer 28

Developing infrastructure reduces the cost of business & makes economic activity easier. This increases FDI, output, employment & income

Question 29

Joint ventures

Answer 29

Some countries (e.g. India) block foreign ownership of firms (FDI). Joint ventures (JV’s) are a way that firms can get around that. JV’s can increase trade, output, employment & incomes e.g Tata Starbucks allows Starbucks to sell their product through an Indian global steel giant, Tata

Question 30

Buffer Stocks

Answer 30

Price stability ensures income stability. It also results in excess production which increases levels of employment. It was used extensively in Europe post second world war (Common Agricultural Policy) & is still used extensively in different markets in India, Thailand (rice), Vietnam, Indonesia (rice & coal)

Question 31

Issues with buffer stocks

Answer 31

Storage is expensive
Transport to & from storage is expensive
It is difficult to analyse & control market forces
It requires all producers to participate honestly in the scheme e.g. producers in Vietnam have been caught importing cheap rice from Thailand & then selling i to the government at a profit in the buffer stock scheme

Question 32

Lewis Model

Answer 32

Productivity & incomes are higher in the industrial sector compared to agriculture so Lewis argued countries should transform their structure
Succesful in south korea

Question 33

Lewis Model critique

Answer 33

Critics argue that many developing countries have high unemployment in urban areas; the theory also assumes that manufacturing will be a labour intensive task when in reality it is often capital intensive

Question 34

Development of tourism

Answer 34

excellent source of employment, revenue & income
Rising global incomes have increased demand for tourism
Ecotourism is developing as a response to negative externalities of consumption that tourism creates. e.g. increased waste, noise, use of scarce resources (drinking water)

Question 35

Development of primary industries

Answer 35

Large GDP growth due to few primary industries
i.e. Saudi and oil, ethiopia with flowers and coffee
benefits from comparative advantage

Question 36

Fairtrade schemes

Answer 36

Shift profits from developing nations to developed nations
Fair trade schemes aim to bypass restrictions by connecting ethical buyers
directly with the farmers in developing countries
(As prices often set far away)
higher prices
develop & market value added products
Combats tariffs on manufactured goods (i.e Coco powder vs beans)

Question 37

Debt relief

Answer 37

High opp cost of debt repayments such as
Loss of infrastructure development
Inability to create a welfare system
Investment in human capital/education
Writing off the entire debt of the most heavily indebted poor countries (HIPC) so that they can focus on building their economies

Question 38

World bank

Answer 38

They provide reconstruction loans to countries devastated by war
Aid in development
Loans to countries to assist with infrastructure
encourage economic reform & trade liberalisation

Question 39

International Monetary Fund (IMF)

Answer 39

They oversee exchange rates & the system of international payments that occurs between nations & individuals
Provide member countries with currency to help deal with balance of payments problems

Question 40

NGOs

Answer 40

Engage in small scale projects giving control to community stakeholders
Draw on local skills
Encourage sustainability & remove the need for aid
Tackle environmental sustainability using local knowledge & resources

Question 41

Tourism more benefits

Answer 41

Fills currency gap
Attract FDI
Local jobs
Higher tax rev
Is seasonal however & TNC may repatriate profits